The Economy Is Falling Short of Expectations
If you had asked everyday Americans, they’d have told you the economy was running on fumes…
Consumer sentiment has turned sour in recent years. Folks have faced a combination of painful inflation, high interest rates, market volatility, and general uncertainty. And a lot of people have been worried that the economy is headed in the wrong direction.
The interesting thing is, that fear didn’t match up with the data. Unemployment has remained near historic lows. Jobs have been plentiful. And the U.S. economy grew 2.5% last year, which was greater than the average of the past decade.
Now, though, the concerns of regular folks might finally be showing up in the numbers.
Economic data has been worse than expected in recent weeks. But don’t give up hope… As I’ll explain, this isn’t the death blow to the markets that you might expect.
The stock market is all about expectations. A company might have great earnings – but if they’re lower than what investors expect, its stock is sure to fall.
Economic data runs on expectations, too. High inflation might not be considered “bad” if it’s still lower than expected… And low unemployment might not be considered “good” if it’s still higher than expected.
One way to see how the economy measures up is the Bloomberg U.S. Economic Surprise Index. It’s an indicator that looks at whether economic data is above or below what analysts expect.
This daily index aggregates a huge amount of economic data, compared with expectations, and outputs it into a simple reading. When it’s above zero, the economy is doing better than expected. And when it’s below zero, it’s doing worse than expected.
This data beat expectations for most of last year and into early 2024. But that trend changed in recent weeks.
Today, this index shows the data is underwhelming to a major degree. Take a look…
The recent readings below negative 0.6 were the worst we’ve seen since 2015. But history shows this isn’t the beginning of a market crash…
Instead, it’s a contrarian signal for investors.
To see it, I looked at each weekly reading below negative 0.5 since the data began in 2000. We’ve seen nine other setups, making this a rare situation. And stocks tend to do darn well after this happens. Take a look…
Stocks began this century with a “lost decade.” Because of that, they’ve only risen 5.5% per year since 2000. But you can do much better if you buy when the economy is disappointing analysts…
Similar setups led to 3% gains in six months and 9.7% gains over the next year. That’s nearly double the typical annual return for stocks this century. And these situations led to gains over the next year 89% of the time.
Everyday Americans saw the cracks in today’s economy long before they showed up in the data. Now, the numbers have confirmed more of those worries… But that won’t kill this bull market.
It might even lead to more upside ahead, based on history. So stay invested… This bull run can last much longer.
Good investing,
Brett Eversole
This article was originally published on this site
